India Capital Markets Forum: key takeaways

Author: IFLR Correspondent | Published: 17 Jan 2019

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Recipient email(s):

Recipient name(s):

Email yourself a copy?

In case you didn’t make it to our eighth India
Capital Markets Forum yesterday, here are all the
highlights

By Melody Mok

Securities market in India: an
overview

From a law-making perspective, the year has been busy
with strong domestic flows supporting both primary and
secondary markets;

A softer market has brought interesting activity, from
listings from new business and real estate companies;

Key recommendations of discussions papers have
demonstrated the willingness of the regulator to be
market-savvy;

Looking at an inclusive market is not enough, there
should be a framework that enables external issuers to come
in and domestic issuers to leave. This will increase the
quality and competitiveness of capital markets in India;

There has been too much focus on
'reinventing’. International laws can be trusted
and provide an opportunity to get guidance from their
laws;

Regulators are beginning the steps for changes in
regulation in small increments, focusing on the most
important. It is a game-changer looking at the big picture,
but unrealistic to have all steps implemented at the same
time;

Domestic liquidity is prominent – many foresee
companies staying in the domestic market/India;

The second crop of interested companies is comprised of
large retail companies in India. In addition to tech, large
FMCG/retail companies will come in to look at India markets.
This is a great opportunity as it will help Indian companies
raise capital;

India is currently in an interesting phase. Growth is
slow globally but domestically still there, with lots of
capital raising.

Primary markets in 2018: review of the deal flow,
challenges and opportunities

Equity-wise, the SME segment saw an increase, while in
the listed space it dropped in 2018;

Domestic institutions were still active in the year
despite global turbulence;

Promotor-less IPOs? Looking ahead we can see if IPOs
would work without promoters. It would be a huge change and
challenging, but something to think about;

Confidence in the domestic credit rating is low. This is
not necessarily due to regulations; credit agencies need to
work on it as well;

Activity in 2019 will be the opposite of 2018. In the
first half of 2019, it will be subdued, while the second half
will be more buoyant;

Activity will be in sectors that are favoured for
FII’s, as well as specific assets with
stability;

Another thing to be aware of is delisting, the other half
of the equation for IPOs. Panellists would like to see
regulators making it easier to delist.

An update on Reits and InvITs

Reits and InvITs activity has stalled in India, but all
can be hopeful and positive on the InvITs side for the coming
year;

Rising interest rates are good for business trust
products;

Despite global events causing uncertainty, Reits
historically outperform other assets as they are viewed as a
stable and high-quality investment product;

Regulations is not as heavily policed for Reits and
InvITs – investors come in and compare the corporate
governance from other jurisdictions to make the
decision;

On disclosure for the independent characters for the
trustee, there is no need to disclose independent directors,
and this can cause huge conflict;

India has mainly managed Reits internally
– would people want them to start externally
managing them? Sebi would make sure that the external manager
is aligned with internal shareholders;

The real estate market has been dead over the past year.
The government talks about infrastructure needs but is unable
to raise enough money and come up with assets that PE/public
shareholders are interested in;

For Reits it is a growing learning curve. Sebi needs to
understand if it is doing a favour to investors or not.

The international bond markets in
2019

The International Securities Markets from the London
Stock Exchange was launched to create a more efficient way to
list, as it is exchange-regulated;

On the global growth side, there is a concern that
China’s depreciation will affect emerging
markets;

However, there is optimism on the dollar side. Issuers
are likely to stay in the market with repeat issuances;

Masala bonds were extremely hot for a while,
it’s not clear where they went. A competitor to
the FPI route? Except the extra limb where masala bond needs
an RBA;

Green bonds are here to stay; volume will increase
further.

Foreign Portfolio Investor Regime

India’s growth is impressive, while there is
stress on emerging markets overall. For example, China is
increasingly struggling to attract foreigner investors;

No global player can ignore India. There is a belief that
elections will not have a negative impact on FPIs;

Engagement of the FPI with RBI/Sebi has increased. It is
now a two-way process where regulators are listening to each
other;

Challenges of the developments – reforms are
guided by one size fits all. There should be a mix of
approaches, aiming to get a balance so it is both business
and investor friendly;

The FPI regime’s initial impact was chaos.
There was a force to deal with the subject, even though there
was no guidance. The confusion between April and
December’s circulations could have been avoided
with a proper consultation;

The RBI wants to attract stable long-term investors,
however, "trapping" the money in India is not the way forward
and there is a need to attract foreign investors in a fair
way;

Data reporting requirements are also something to look
out for. FPIs’ listed entities behind them have
their own home country laws. It is important to create
harmonious reporting for the two jurisdictions. Refining has
been happening, working towards data protection.

Conducting due dilligence

The basic concept is the golden rule –
prospectors to write documents based on the four pillars:
true, fair, full and accurate;

Intangible assets have become more prominent, and it is a
challenge to interpret these assets;

Disclosure or verification can be seen as too detailed,
especially for information that cannot be easily verified
– for example a quote from the CEO.
Sebi’s need to be descriptive may hinder the
larger picture;

Promotor group identification – peculiar to
India, promotor group concept is completely foreign, and
becomes challenging in terms of verifying family
inclusion;

Being limited to an international offering risks
short-changing the Indian investor for quality of disclosure
and level of diligence;

Big companies do not have promotors. Sebi had deep-rooted
thoughts on promotors, but it is great to see it is starting
to change this;

Labour law issues in cross-border transactions have also
been prominent recently.